Tuesday, March 22, 2011

Sell! Sell! Sell!

Interesting things are happening right now with Japanese Yen exchange rates in the aftermath of the disaster. So Japan is having to sell foreign assets in order to afford their rebuilding operation. This increases the demand for Yen in the currency exchange market, which in turn increases the strength of Yen. This might sound good to those who believe a strong currency is the sign of a strong economy. However this can have seriously negative implications for Japan's economy, especially in a time when they are trying to recover. When a nation's currency is strong, relative to other currencies that is, it makes the goods produced there relatively expensive for the rest of the world. Sony and Nissan may run in to trouble competing in the global market when all of a sudden their electronics and cars provide the same quality as before, but now at a higher price. This of course leads to reduced demand for Japanese goods which leads to fewer jobs in Japan, and the scent of recession begins to hang in the air.
Luckily for Japan, this is all being avoided for the time being thanks to Europe's central banks, the Federal Reserve, and the Bank of Canada, who have coordinated to fight the rising exchange rate of the Yen against the US dollar. So they are selling Yen like it's going out of style and helping their economy maintain balance.
There are however many uncertainties in this situation. The selling of Yen coupled with the Japanese government selling foreign assets counter each other, and it may be hard to keep the two balanced. Also the  Bank of Japan is printing money to also try and weaken their currency, adding to the complexity of the situation. Only time will tell how this will pan out, but it is good to know the world supports Japan and is concerned for their recovery.

More deatils here

(This was posted by Trevor Murphy-Mannix)

Friday, March 11, 2011

Exchange Rates Change After Tragedy in Japan

First off, I want to say that I am praying for all of the citizens of Japan as I write on this most current event.  As a representative of the International Business and Economics Club, I hope the best for the people of Japan.  And while a natural disaster of this degree could be devastating to a country, the support of countries around the world is going to be ready to aid Japan. More information on the incident can be found here.

Within two hours of the massive 8.9 earthquake that has caused immense damage to the people and country of Japan, the US Dollar and Euro both gained on the Yen.  The Yen has dropped .2% and .4% off the dollar and Euro.  It should be interesting to watch how the Yen fluctuates as the effects of the tsunami continues.  The exchange numbers can be seen on Reuters, along with further information in the article about exchange information around the world, but furthermore concerning is the aftermath of this terrible disaster.

While it is likely Japan will be taking an economic hit from the tsunami that has resulted due to the earthquake and the reported 7.4 aftershock, the bigger concern should be directed towards the citizens of Japan. 

                  Yen Falls Broadly After Huge Japan Quake.  Reuters

(post by Evan Amano)

Wednesday, March 9, 2011

Talks of Merger for NYSE


A few weeks ago it was announced that the New York Stock Exchange (NYSE) will be sold by German company Boerse. The New York Stock Exchange has long been the icon and representative of capitalism in America, but it seems that this will soon change.

It is undoubtedly true that "NYSE is one of the most preeminent brands in the financial industry." This is why the NYSE is such a desirable asset and why such a big deal was successfully carried out.

However, Americans might maintain a good brand such as NYSE by themselves. Nonetheless the deal has yet to be completed and we must wait until the Securities and Exchange Commission and the Department of Justice sign off on the transaction.

As globalization advances, more transactions like this one will take place worldwide. More big businesses will merge, more capital will flow internationally, and more people will move from one country to another country.

(Post by Jooho)

Wednesday, March 2, 2011

Is Silver the New Gold?

With the falling rate of the dollar, and many other world currencies in turmoil, people are starting to return to the origins of money by investing more heavily in precious metals. But are gold and silver really as steady as some would like to believe, and is gold the way to go? A recent article by Peter Schiff weighs in on the issue.

According to Schiff there may soon be a shift from the use of gold to silver as a reserve asset. The state of the current world economy has led to a slide from developed markets to free markets in metal. While many countries are embracing this change, and profiting from it, the US has thus far held firm to the declining developed markets, driving us further into poverty. Gold has long been the metal of choice among investors, but its main constraint is that it is primarily useful as a precious metal. Silver, on the other hand, is effective both as a precious metal and an industrial metal. These days, silver is used as an input in many high-demand electronic products including touch-screen phones and batteries. The current demand for silver outweighs the supply of it by nearly 170 million ounces a year, illustrating that in time it may become a scarce resource, and thus highly valuable. Although gold is still worth far more per ounce, silver is no longer such a far second and the growing demand for silver may cause the gap to lessen even more in future years.

But what does this mean for our economy? Schiff also makes some  rather dire predictions as to the future of the falling US economy, alluding to a possible crash. His suggestion is to invest in silver now, as silver would make a more reasonable cash substitute for everyday transactions than gold. In his own words, "[silver] also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold’s worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups." Although I carry a somewhat more optimistic view of the future US economy, Schiff makes some very valid points. Should we start using gold and silver as money, it would be more convenient, and less risky, to carry silver coins rather than gold.

Worldwide the demand for precious metals is steadily increasing. Could this be the start of a switch from fiat money back to the use of metals as commodity money? The rapid decline of the US dollar may force the US economy to make the switch, which might incite other countries to do the same. It may very well be that currency has finally come full circle back to commodity money which, if the cycle continues as before, could later transition into fiat money. And if the latter revolution occurs it may very well be that we could finally end up with a single world currency.

(Posted by Elizabeth Hope)